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Gold Prices May Rise as US GDP Downgrade Cools Fed Rate Hike Bets

Gold Prices May Rise as US GDP Downgrade Cools Fed Rate Hike Bets

2017-06-29 10:00:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Gold prices may break from consolidation on US GDP revision
  • Soft data might weigh on Fed rate hike bets, push gold upward
  • Crude oil prices lack obvious catalyst after EIA-inspired gains

Gold prices continued to mark time, waiting for a fresh catalyst after briefly spiking to a six-week low earlier in the week. The spotlight now turns to a revised set of US GDP figures, which are expected to confirm prior estimates showing the economy expanded at an annualized rate of 1.2 percent in the first quarter.

Broadly speaking, US economic news-flow has continued to deteriorate relative to consensus forecasts since the GDP print was last updated in late May. That opens the door for the possibility of a downgrade. Such a result may dim prospects for another Fed rate hike in the near term, boosting the yellow metal.

Crude oil prices surged even as EIA inventory flow data showed raw-material stockpiles added 118k barrels last week. That seemingly negative bit of news was foreshadowed in yesterday’s analogous API data and seemed to be shrugged off.

Rather, traders focused on an unexpectedly large gasoline storage outflow of 894k barrels. Consensus forecasts envisioned a far smaller 288.6k draw. This seemed to fuel hopes for firming demand for refined product that may help accelerate absorption of the global crude supply glut.

A lull in relevant event risk may translate into consolidation over the day ahead. Soft US GDP figures may apply a degree of downside pressure but that may be offset by US Dollar weakness amid cooling Fed rate hike speculation. The next major directional push may have to wait for now.

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GOLD TECHNICAL ANALYSISGold prices continue to consolidate after testing a six-week low but positive RSI divergence hints a bounce may be ahead. Near-term resistance is marked by the 23.6% Fibonacci expansion at 1263.22, with a daily close above that targeting the 38.2% level at 1280.05. Alternatively, a reversal below chart inflection point support at 1241.20 clears the way for testing a rising trend line at 1231.74.

Gold Prices May Rise as US GDP Downgrade Cools Fed Rate Hike Bets

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices pushed through key resistance at 43.79 (May 5 low, channel floor support-turned-resistance), opening the door for a challenge of 45.32 (May 4 bottom). A daily close above that exposes 47.12 (March 14 low, channel mid-line). Alternatively, a move back below 43.79 paves the way for a retest of the June 21 lowat 42.03.

Gold Prices May Rise as US GDP Downgrade Cools Fed Rate Hike Bets

Chart created using TradingView

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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